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Posted on Oct 19, 2011

5 Mistakes Most New Franchise Systems Make

Franchise MistakesStarting a new franchise venture is exciting – the anticipation of building a system, helping others succeed, financial success … all fueled by entrepreneurial energy and adrenaline!

But nothing can put the brakes on an otherwise enthusiastic and formidable franchise start than the following five missteps:

  1. Failing to secure and register the trademark – the essence of franchise success is uniformity and brand identification. Your trademark is your identity. Do you have a trademark or service mark that is unique, protectable and able to be registered with the United States Patent and Trademark (USPTO)? This is a federal registration that will protect you and allow you to ward off poachers – but not all names or marks are protectable. The USPTO registers allowable trademarks that are not already registered, not descriptive for the goods/services, a geographical term or a surname. To determine if your mark will qualify for registration (i.e. protection), you need the services of an experienced trademark or franchise counsel.
  1. Using a “reactive” development strategy – allowing franchise buyers to control where you will locate your units is a huge mistake. Careful and determined placement of your franchise locations is a must – be “proactive” not reactive. I see too many start-up systems that attempt to sell nationwide – the result is a far-flung, unmanageable system that lacks geographic synergy and brand identification. Concentrate, concentrate, concentrate. A statewide or regional development approach makes better sense than “going national.”
  1. Failing to retain experienced franchise counsel – because franchising is a “regulated” business process (similar to selling securities), retaining inexperienced legal counsel is risky and costly. Preparation of a fully-complaint Franchise Disclosure Document, as required by the Federal Trade Commission and franchise registration states (approximately 15 states), as well as thoroughly-drafted agreements, is not for neophytes. My recommendation is to select a member of the American Bar Association’s Forum on Franchising, the preeminent national association for franchise attorneys. Forum members are exposed to constant legal updates, attend national conferences, write informative franchise articles and maintain a national informational network. Using inexperienced counsel can set a system back to the very start.
  1. Improper franchise sales training – selling a franchise is tricky business. Some of the issues include: knowing registration requirements, having the correct documents, knowing when and how to deliver disclosure documents and final agreements, knowing the rules about financial performance representations – just to name a few. Flawed sales can lead to major legal problems. Make sure you and your sales personnel know what you are doing. For a great sales guide, consult my friend Warren Lee Lewis’s The Franchise Seller’s Handbook. (warren.lewis@akerman.com)
  1. Selling to the “wrong” buyers – just as a “reactive” geographic development strategy can set a new system on the wrong path, so to can poor franchisee selections. The first few franchisees are the most important. Take your time and make sure you are choosing the best “partners.” You don’t want just anyone, you want the best ones. Before you meet with anyone, develop your ideal “franchisee-profile” and then see how your candidates stack-up against your standard. Develop a solid franchise application, check references, vet personalities and capabilities. Engage in proactive due diligence.

Get your system off to a strong start – match that enthusiasm with solid preparation by avoiding the five basic mistakes.

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com

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